FIN 335 CORE MAIN ANSWERS AND QUESTIONS SET
A+
✔✔Why study finance? - ✔✔- Marketing (budgets, marketing research, marketing
financial products)
- Accounting ( dual accounting and finance function, prep of financial statement)
- Management (strategic thinking, job performance, profitability)
- Personal Finance (budgeting, retirement planning, college, day to day)
✔✔3 major forms of business organizations in the us - ✔✔- Sole proprietorship
- Partnership
• General
• Limited
- Corporation
• S-Corp
• Limited liability company
✔✔Sole Proprietorship - ✔✔A business owned by one person
advantages: easiest to start, least regulated, single owner keeps all the profits, taxed
once as personal income
disadvantages: limited to life of owner, equity capital limited to owner's personal wealth,
unlimited liability, difficult to sell ownership interest
✔✔Partnership - ✔✔A business in which two or more persons combine their assets and
skills
advantages: two or more owners, more capital available, relatively easy to start,
income taxed once as personal income
disadvantages: liability (general and limited partnership), partnership dissolves when
one partner dies or wishes to sell, difficult to transfer ownership
✔✔corporation - ✔✔A business owned by stockholders who share in its profits but are
not personally responsible for its debts
advantages: limited liability, unlimited life, separation of ownership and management,
transfer of ownership is easy
, disadvantages: separation of ownership and management (agency problem), double
taxation
✔✔Goal of Financial Management - ✔✔only goal that consistently works - provide best
value to consumer
✔✔the agency problem - ✔✔Agency relationship: Principal hires an agent to represent
its interests ((stockholders (principal) hire managers (agents) to run the company))
Agency problem: conflict of interest b/w principal and agent (management goals and
agency costs)
✔✔Managing managers - Managerial compensation - ✔✔- incentives can be used to
align management and stockholder interests
- the incentives need to be structured carefully to make sure that they achieve their goal
✔✔corporate control - ✔✔the threat of a take over may result in better management
- other stakeholders
✔✔Financial markets - ✔✔- cash flow to the firm
- Primary vs secondary markets
- Dealer vs auction markets
- Listed vs. over the counter securities
- NYSE
- NASDAQ
✔✔Business Finance - important Questions answered using Finance - ✔✔- What long
term investments should the firm take on?
- Where will we get the long term financing to pay for the investments?
- How will we manage the everyday financial activities of the firm?
✔✔Financial Manager - ✔✔- financial managers try to answer some, or all of these
questions
- the top financial manager within a firm is usually the CFO
- treasurer: oversees cash management, credit management, capital expenditures, and
financial planning
- controller: oversees taxes, cost accounting, financial accounting, and data processing
- Both require extensive use of financial statements, their construction/deconstruction
and how to improve the bottome line
✔✔Financial management decisions - ✔✔- Capital budgeting: what long term
investments or projects should the businesses take on?
- Capital structure: how should we pay for our assets? should we use debt or equity?
- working capital management: how do we manage the day to day finances of the firm?
A+
✔✔Why study finance? - ✔✔- Marketing (budgets, marketing research, marketing
financial products)
- Accounting ( dual accounting and finance function, prep of financial statement)
- Management (strategic thinking, job performance, profitability)
- Personal Finance (budgeting, retirement planning, college, day to day)
✔✔3 major forms of business organizations in the us - ✔✔- Sole proprietorship
- Partnership
• General
• Limited
- Corporation
• S-Corp
• Limited liability company
✔✔Sole Proprietorship - ✔✔A business owned by one person
advantages: easiest to start, least regulated, single owner keeps all the profits, taxed
once as personal income
disadvantages: limited to life of owner, equity capital limited to owner's personal wealth,
unlimited liability, difficult to sell ownership interest
✔✔Partnership - ✔✔A business in which two or more persons combine their assets and
skills
advantages: two or more owners, more capital available, relatively easy to start,
income taxed once as personal income
disadvantages: liability (general and limited partnership), partnership dissolves when
one partner dies or wishes to sell, difficult to transfer ownership
✔✔corporation - ✔✔A business owned by stockholders who share in its profits but are
not personally responsible for its debts
advantages: limited liability, unlimited life, separation of ownership and management,
transfer of ownership is easy
, disadvantages: separation of ownership and management (agency problem), double
taxation
✔✔Goal of Financial Management - ✔✔only goal that consistently works - provide best
value to consumer
✔✔the agency problem - ✔✔Agency relationship: Principal hires an agent to represent
its interests ((stockholders (principal) hire managers (agents) to run the company))
Agency problem: conflict of interest b/w principal and agent (management goals and
agency costs)
✔✔Managing managers - Managerial compensation - ✔✔- incentives can be used to
align management and stockholder interests
- the incentives need to be structured carefully to make sure that they achieve their goal
✔✔corporate control - ✔✔the threat of a take over may result in better management
- other stakeholders
✔✔Financial markets - ✔✔- cash flow to the firm
- Primary vs secondary markets
- Dealer vs auction markets
- Listed vs. over the counter securities
- NYSE
- NASDAQ
✔✔Business Finance - important Questions answered using Finance - ✔✔- What long
term investments should the firm take on?
- Where will we get the long term financing to pay for the investments?
- How will we manage the everyday financial activities of the firm?
✔✔Financial Manager - ✔✔- financial managers try to answer some, or all of these
questions
- the top financial manager within a firm is usually the CFO
- treasurer: oversees cash management, credit management, capital expenditures, and
financial planning
- controller: oversees taxes, cost accounting, financial accounting, and data processing
- Both require extensive use of financial statements, their construction/deconstruction
and how to improve the bottome line
✔✔Financial management decisions - ✔✔- Capital budgeting: what long term
investments or projects should the businesses take on?
- Capital structure: how should we pay for our assets? should we use debt or equity?
- working capital management: how do we manage the day to day finances of the firm?
